This Week in Barrons: 10-18-2020:
Factually:
- We ALWAYS like what we CHOOSE,
- BUT we do NOT always choose what we like.
The latest research supports that we very often do not choose what we like. That’s important because our choices – shape our preferences, our habits, and ourselves. The research is showing us that our choices are more situational than what we had anticipated. The line: “It seemed like the right thing to do at the time” – finally is making sense. It’s those ‘situational’ choices that are shaping present-day thinking more so than the analytical ones – especially in an ever-changing, COVID environment. The research also shows that those who love what they do – have a higher degree of success / satisfaction than those don’t. That’s not rocket science, but it does explain the inverse correlation between ‘paralysis by analysis’ and success. I remember when someone asked Jack Welch (past GE chairperson): “What’s your most important success criteria?” His answer surprised everyone: “Speed to market. Because we’ll figure the rest out once we get there.” The good news is that 20-years later, research has finally proven Jack to be correct.
In deference to EVH: BL’s top 10 guitar players of all time:
10. Pete Townshend, "He invented the power chord" - Andy Summers.
9. Duane Allman, "He was more precise than anybody else." - Robert Randolph.
8. Eddie Van Halen (EVH), "It was like hearing Mozart for the first time." - Mike McCready of Pearl Jam.
7. Chuck Berry, "There’s rock, but it’s Chuck’s roll that counted."- Keith Richards.
6. B.B. King, "When him bending that last note that gets you moving in your seat." - Billy Gibbons.
5. Jeff Beck, "His tone is melodic, urgent, edgy, and sweet at the same time." - Mike Campbell of The Heartbreakers.
4. Keith Richards, "His 2 and 3 note themes were more powerful than any great solo.” - Nils Lofgren of the E Street Band.
3. Jimmy Page, "He writes, produces and plays. Nobody else does that.” - Joe Perry.
2. Eric Clapton, "His blues-based sound is the core of modern rock guitar." - Eddie Van Halen.
1. Jimmy Hendrix, "His playing was effortless. You never think that he’s working. It just flows through him.” - Tom Morello
The SPAC Market: ”Rain, rain, rain on me…”
Per HL / AJ:
Are SPACs popular because they’re a shortcut to a hot public market? Yes, but let’s not ignore the fact that SPACs work well on their own. Privately held companies over the last 6 years have raised huge sums of capital, and pushed out their timelines to going public fairly substantially. There are billions of dollars in value sitting in the private markets and an opportunity to go public quickly, build trust, and leverage the tailwinds of growth – really shouldn’t be ignored.
Are SPAC investors just out for the quick buck? Yes and no. Yes, investors like ‘hot and fast’ money, but just as many are interested in being part of a small company’s journey – and are frustrated because these companies have remained private longer than normal. Most investors are long-only and are really excited about technology and service companies that can be long-term disrupters. They want to be aligned with the next generation of iconic companies, and would prefer to do that where liquidity is present.
How do SPACs make money? Traditionally SPACs get 20% of the original founders shares, and get to sell those shares as soon as the stock begins to trade.
Does the management of the SPAC manage the company too? The companies continue to run their own businesses. The SPAC team continues to act as a sounding board, an access to additional resources, and leverage for their investment decisions.
InfoBits:
- Employment won’t return to its pre-COVID levels… until at least 2023 say economists – due to election uncertainty, a lack of stimulus, and the potential for another COVID surge without a vaccine.
- We’re 10B cans short this year: COVID is causing a tremendous can shortage due to higher levels of at-home drinking and larger pack sizes.
- European EVs reached an 8% share in the 1st half of 2020… and the market is expected to triple by the end 2020. Do Benz and Land Rover even care?
- SoftBank’s Vision Fund is launching a SPAC… No surprise there.
- McAfee is going public via IPO: The cybersecurity company founded by tech eccentric John McAfee, is hoping for a valuation of $3.64B.
- Dropbox announced that working remotely is now the standard… and if people need to meet – the company will set up “Dropbox Studios.”
- 14 of this year’s Senate races look competitive… and 12 of those 14 seats are currently held by Republicans. Democrats need to win at least 5 to retake a Senate majority, and they currently lead in 6.
- If Biden wins the popular vote by at least 7 points… the Democrats will be favored to retake the Senate. Biden now leads by 10 points.
- A contested election… could cost the U.S. its AAA credit rating.
- Size Matters – sez Apple in terms of the iPhone 12 screen:
o The Mini is adorable @ $699 / 5.4-in. screen, and fits into a back pocket.
o The Normie’s base model has a 6.1-in. screen for $799.
o The Pro has a 6.1-in. screen and starts @ $999.
o The Pro Max has a 6.7-in. screen (over ½ an iPad) starting @ $1,099.
- Airlines 101: Delta lost $5.4B last quarter, compared to a $1.5B YoY profit. It burned through $11B in the last two quarters.
- Airlines 102: American and United are cutting 32K jobs since federal airline aid expired on October 1st.
- AMC could run out of cash… if people continue to Netflix-and-hibernate.
- Uber’s and DoorDash’s futures are riding on election day… and people voting ‘yes’ to Proposition 22.
- That’s clucked up... From 2012 to 2019, multiple U.S. chicken companies coordinated to suppress competition. Pilgrim’s Pride got fined $100m, but all of the salespeople were calling each other across companies to fix prices.
- Zoom-Chella… Zoom will start letting people host paid-entry online events with a new service called OnZoom.
- Wells Fargo fired over 100 employees… for misrepresenting the bank to obtain funds from a small business relief fund. So Wells, you’re now defrauding the U.S. Small Business Administration. How do you remain in business?
- In New York City, rental prices fell 52% per square foot. But, in Palm Beach average home prices reached $7M and September saw a 62% increase in signed housing contracts.
- Stimulus measures reduced the poverty rate to 9.3% in June; however, the rate is back up to 11.1% and jobless claims are also higher.
- The richest person on Earth is… Jeff Bezos @ $200B. Year-over-Year the 25 wealthiest people gained $361B.
- U.S. 2020 deficit hit $3.13T last week… the highest on record.
Crypto-Bytes: “Place your bets on Bitcoin…”
- Per AP: Investors fear inflation… and that fear has driven significant capital flows into inflation-hedged assets like: gold, Bitcoin, and real estate. The combination of the FED’s asset price manipulation and inflation fears have driven both gold and Bitcoin to drastically outperform equities and other commodities. Bitcoin itself is up more than 50% YTD. Low interest rates and additional QE / stimulus will continue to drive demand. Traditional asset managers are starting to make the leap into owning Bitcoin. Fidelity Investments is pushing 1 to 5% per portfolio, and Paul Tudor Jones just revealed that he has put 2% of his assets into Bitcoin. Pension funds are into BTC, and Grayscale (the largest digital asset investment manager) is seeing record inflows. Even traditional corporate asset managers are using Bitcoin as a reserve asset for part of their treasury. You can definitely make a case for BTC’s demand accelerating into Q2 of 2021.
- On the Bitcoin supply side… there will only be 21m total Bitcoin ever available, and approximately 18.4m are currently in circulation. That started in 2009 with 7,200/day entering the Bitcoin supply. Creation was cut to 3,600/day in 2013, and further cut to 1,800 in 2017. In May 2020, we experienced the latest “Bitcoin halving” which now has 900 Bitcoin/day entering the circulating supply. Historically, these supply shocks have led to significant price increases of 20X+ in the following 18 months post-halving.
- A 3rd factor in the BTC price discussion… is that over 60% of all BTC in circulation has NOT changed hands in the last 12 months. So the majority of Bitcoin investors stomached multiple double-digit price movements over the years and have continued to hold the asset. So, the likelihood of those 11M+ Bitcoin trading in the short term is very low.
- Therefore: (a) the demand side is increasing significantly, (b) the supply side is making Bitcoin more scarce, and (c) the available float is much smaller than realized. This could lead to a more pronounced upward movement in the Bitcoin price by the end of 2021.
- Furthermore: both gold and Bitcoin are currently serving as ‘flight to quality’ vehicles. Gold is on the analog side while Bitcoin is the digital. Gold’s market cap is $8T and Bitcoin’s is only $200B. When Bitcoin’s market cap eclipses that of gold, Bitcoin will have experienced a 40x increase in price. Using history as our guide, BTC should undergo a significant double-digit price increase over the next 15 months or so, followed by a nasty 50%+ decline, and finally another significant price increase that would push us closer to gold’s market cap.
Last Week:
Monday: Per Mohamed El-Erian: “This market will just keep going up no matter what, and will seek whatever narrative it needs to explain the levitation catalyzed by $9T in central bank liquidity. Today, we’re focusing on fresh optimism about fiscal stimulus despite there being virtually no hope of Congress reaching a deal before the election.” I’m looking for a possible breakout in WSM, and I’m in over $101.95. I would take a swing at TWTR over $48.65. ABT has earnings in a week, so I’m in over $111.20.
Tuesday: JPM’s and C’s earnings are out and they both beat estimates. JNJ beat their estimates, but the stock is reacting poorly because they've had to pause their vaccine trial. The consumer price index is out, and they say it only rose 0.2% - believe that if you will. If you're not one of the FAAMNG's there's a heck of a good chance you're red. A skinny segment of the market is the only reason the market is holding up. I love OSTK, and if it can get over its 50-day @ $86.83 – I’m in.
Wednesday: Reuters just reported: U.S. producer prices increased more than expected in September – up 0.4%. Hey Chairperson Powell, what's up with that? Now that we’ve doubled your inflation target - are you going to shoot for 10% now? Oh wait, we already have 10% inflation. Back on October 6th, LPL had a massive volume spike on a relatively down day, but since then it's been straight up. If it cracks today's high of $7.17 I'm going to take some.
Thursday: Inflows to the NASDAQ inverse ETF (SQQQ) have hit record levels. That means a lot money thinks that tech is ripe for a fall. Uncertainty has a way of closing pocket books, and having people just sit tight. Markets don't have to go down by overt selling – they also go down if there's no one buying. Initial jobless rose by 53K, and are higher than expected. They're blaming this on a resurgence of COVID.
Marijuana… The beverages are still coming…
- Currently, over 46% of Arizona voters support adult use legalization.
- West Virginia issued its first ten medical cannabis licenses.
- Mexico’s Senate leader expects to legalize cannabis before December.
- TPB acquired a 20% stake in hemp cigarette manufacturer Wild Hempettes.
- Marijuana stocks are getting high because: (a) Sen. Kamala Harris said Joe Biden would decriminalize marijuana at the federal level during the VP debate, and (b) Vermont Governor Phil Scott announced that marijuana legalization will move forward in his state. While recreational pot use is legal in 11 US states, marijuana is still an illegal Schedule 1 drug at the federal level, along with LSD and heroin. Expanding the legal pot market is key to its success — especially since the past two years have been such a buzz kill.
- Beverage companies are looking to tap into a new segment: cannabis beverages. Besides Constellation and Canopy Growth, other notable deals include Tilray’s partnership with Anheuser-Busch and HEXO’s joint venture with Molson Coors. Constellation’s situation, however, is the only one where a company actually spent billions of dollars investing directly in a cannabis producer. It’s very clear that if you’re a cannabis company looking for a deal with another industry, alcohol-producers are a viable source of support.
Next Week: What do markets say about RISK and the Election?
- Several risk factors all fired warning shots… during last week’s market action. We saw ‘wild’ sell-side activity going into Friday’s close – including a 50-point S&P reversal, and a 200-point reversal in the QQQ’s. During the day we learned that retail sales had been good, but Brexit was ‘basically’ broken. For the week the S&Ps were unchanged, but the Nasdaq finished slightly higher.
- Retail Sales were good… but unfortunately, I take this with a grain of salt. Where else are people going to spend money except on retail. Despite that information, AMZN and WMT both finished significantly lower.
- How does volatility apply to the election? The market is telling us that the election won’t be decided until the week of December 18th. The market is telling us that (a) either it knows the answer or (b) the election will be a non-event in so far as the financial policies of either candidate are concerned. The trade here is to buy the November Iron Condor on the QQQ or IWM. Make your strikes the amount of the expected move – and wait for any large move to cash out.
- Could this market fade from its double-top? Yes, it’s very plausible.
- Is the VVIX @ 120 telling us anything? 110 on the VVIX is dangerous. 120 tells me that real risk is going to be hitting this marketplace in very short order.
- Is the Dollar going higher a warning sign? Yes, the dollar index ($DXY) is this market’s flight to quality.
- Are the bonds moving higher a warning? The bonds (/ZB0) moved outside their expected move (to the upside) this week. This is a certain display of risk.
- How are the pros viewing next week? The expected move of the SPX for next week is $10 higher than it was for this week. The pros are looking to see a patch of volatility over these next 3 weeks.
Tips:
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- Yamaha Gold (AUY = $5.93 / in @ $4.60 = up 29%),
- Canopy Growth Corp (CGC = $17.76 / in @ $22.17 = down 19%),
- CTI BioPharma (CTIC = $3.17 / in @ $3),
o Selling more Nov. $3 covered calls for 65 cents > 20% in a month…
- EXK Gold (EXK = $3.45 / in @ $1.53 = up 125%),
o Looking into selling Nov. $4 covered calls
- GBTC Bitcoin (GBTC = $12.43 / in @ $9.41 = up 32%),
- Hecla Mining (HL = $5.30 / in @ $2.36 = up 125%),
- KL Gold (KL = $49.84 / in @ 26.85 = up 90%),
- MUX Mining (MUX = $1.08 / in @ $1.14 = down 4%),
- New Gold (NGD = $2.06 / in @ $0.82 = up 151%),
o Looking into selling Nov. $2 covered calls
- Pan American Silver (PAAS = $32.88 / in @ $13.07 = up 152%),
o Looking into selling Nov. $40 covered calls
- Hyliion (HYLN = $27.00 / in @ $0.32 = 8,344%).
Crypto:
- Bitcoin (BTC = $11,350),
- Ethereum (ETH = $370),
- Bitcoin Cash (BCH = $250)
Thoughts: Buy November 2020 out-of-the-money calls on the VIX.
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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